IR and the corporations power: Might winners be losers?

Losing is sometimes better than winning. That might be the case for the Australian business community which supports the Commonwealth’s new wages setting policy.
Of course, the Government could eventually lose. Although no government Senator will want to incur the Prime Minister’s wrath by voting against “a matter of faith”, a defeat is possible in the High Court.

The High Court’s recent decision on the Government’s industrial relations advertisements shows how unpredictable that court is. A majority of the justices allowed federal departments to spend their appropriations on whatever they wanted. That perplexing opinion – one which surprised those who administered appropriation laws – was conjured up by four Justices who fundamentally disagreed with the arguments advanced both by the Government and the ACTU.

So, it is possible that an unfathomable High Court will find in favour of the States against the Commonwealth. But it is equally possible that the High Court will accept a further centralisation of power away towards the federal government. Some of the implications of such a victory should concern the Coalition and business.

If you believe Commonwealth advertisements, its industrial relations legislation will cause a wages blow-out. The government says that WorkChoices deserves community support because those on Australian Workplace Agreements earn more than award wages. The head of the Australian Chamber of Commerce and Industry, Peter Hendy, last week used this argument to rebut concerns about low wages for unskilled women workers. Hendy said that on average, women on AWAs “earn 60.5 per cent more than women across the labour market” and “48.1 per cent more than women who are on collective agreements in the workforce.”

If business really believed that WorkChoices would broaden these results, it would be an opponent not a supporter of the proposed law. But the advertisements are propaganda. The statistics mean little more than the statement that women who wear suits earn more than women who wear aprons. Ask a cleaner or waitress to wear a suit and see how she fares in her AWA negotiations. No, the real threat from a High Court win is the power it allows the Commonwealth in other matters.

Following the strong defeat of the Commonwealth’s 1948 constitutional referendum to give it power to control rents, prices and charges, federal governments have believed they had limited peacetime powers in this arena. In Gough Whitlam’s first term he introduced the Prices Justification Bill to moderate inflation but that law was more about public bullying than setting prices in the private sector.

Recent federal governments have also shied away from using their constitutional power to make laws concerning corporations, believing that the power has real limits. But if the Howard government is correct that the Commonwealth parliament can directly control minimum wages paid by corporations – without the need for an industrial dispute and a court such as the Industrial Relations Commission – the federal government should also have the power to set maximum wages paid by corporations. It would be a simple drafting exercise to give this power to the Fair Pay Commission or to a minister.

Should voters believe that executive pay is outrageous, which they are, the electorate could reward political parties which bring executive wages under control. The Howard government won’t regulate these wages, although it has voiced concerns about them. But the possibility that another government could intervene should worry businesses.

There is even a more troubling matter. If the Commonwealth has the power to set prices which corporations can pay for their workers and executives, it should also be able to set prices for other inputs used by corporations. It might even have the power to set prices for outputs of corporations.

The most likely candidate for price control is petrol. Anxiety over petrol prices – especially refining and distribution margins – could re-emerge when another set of shocks destabilises the petroleum market. The Australian Competition and Consumer Commission understands consumer concerns and distances itself from accusations that it is doing too little. Its literature makes plain that “The ACCC currently has no power to regulate wholesale or retail petrol prices in Australia.” But its submission in June 2000 to the Productivity Commission shows it would welcome pricing powers. Business should hope that the word ‘currently’ is not a portent for a future government.

5 Responses to IR and the corporations power: Might winners be losers?

I agree with your assessment of the Combet case. In fact there was a majority of 5 in favour of the validity of the IR propaganda appropriation rather than 4 (Gleeson CJ concurred with the majority joint judgment albeit in separate reasons).

The majority effectively ignored previous principles enunciated as recently as Brown v West (1990), which cited the following principle from A-G (Vic) v Commonwealth (1945) with approval:

“[T]here cannot be appropriations in blank, appropriations for no designated purpose, merely authorizing expenditure with no reference to purpose.”

The majority upheld the validity of an appropriation expressed to be for “Outcome 2 -Higher productivity, higher pay workplaces” as being sufficiently specific to amount to an appropriation of funds “for the purposes of the Commonwealth” as required by Constitution section 81 (and 83). That’s just about as close as one can imagine to an “appropriation in blank”.

Sadly, however, it seems highly unlikely that the High Court will generate an equally bizarre interpretation of the corporations power. The case law on sections 81 and 83 was relatively sparse, and it was clearly open to the Court to develop a line of reasoning that permitted very vaguely worded appropriations (however that might seem to many of us to fly in the face of fundamental constitutional purpose). The case law on the corporations power is much more extensive and specific. Although there are a few peripheral arguments that might have an outside chance, by far the lost likely result is that the corporations power DOES authorise the new IR law. Pretty well all the judgments in Dingjan, the most recent High Court authority on section 51(xx), suggest that outcome. McHugh J’s reasoning in Dingjan is representative of accepted authority:

“The corporations power, like all s.51 powers, is a plenary grant of power. It is to be construed with all the generality that its words will admit. Unlike most of the powers conferred by s.51, however, the corporations power is directed to persons and not subject matters such as trade, commerce, taxation or quarantine. Although laws that regulate the activities, functions, relationships or business of corporations are clearly laws with respect to corporations, the power conferred by s.51(xx) also extends to any subject that affects the corporation. As long as the law in question can be characterised as a law with respect to trading, financial or foreign corporations, the Parliament of the Commonwealth may regulate many subject matters that are otherwise outside the scope of Commonwealth legislative power.”

That reasoning would clearly support a law regulating the relationship between corporations and their employees (including laws regulating employment terms and conditions), not to mention laws regulating the relationship between corporations and their suppliers and/or customers. Such laws would certainly include ones regulating prices of goods or services (outputs). There isn’t much controversy about these propositions among constitutional lawyers, even if they might come as a surprise to some members of the BCA. This is a genie that might much more wisely have been left in its bottle from a whole range of perspectives.

Interesting post Tony. I don’t know where Hendy gets his figures from. The ABS (March 2005) says average weekly earnings for women on registered AWAs is $636.60, and for those on registered collective agreements it is $678.50. The reference (pdf) can be checked on page 25 at:

Ken, while I am certainly no expert, in my new (little) book, Jeff Shaw notes Dingjan, but goes on to say that the question remains undetermined, a position very much like George Williams’ position in this speech:

He then goes on to outline three lines of attack: (1) distinguishing between the direct protection of the activities of s51(20) and the (forceful) displacement of state jurisdictions; (2) relying on various cases that have upheld implied prohibitions (as recently as 1995) on Commonwealth action by virtue of the federal nature of the constitution; and (3) the originalist argument.

While he by no means suggests that an appeal has a good chance of winning, he does argue that it will be a good test, the court having to resolve the tension between legal conservatism (which would tend to take a sceptical view of the use of the corporations power for ulterior purposes) and Howard’s political conservatism. I guess I’m pressing to get a sense of how firm you are on your conclusion that a Commonwealth win is the “most likely result”.

Ken, pls excuse my ignorance, but following up in casual conversation today, I discover that in Dingjan, Mason CJ, Brennan, Toohey and Gaudron JJ all gave indications (of varying explicitness), in the course of their argument on another topic, that they believed 51(xx) to be a plenary power. Nonetheles, in the case itself, which was about whether laws which authorised the AIRC to review contracts between an independent contractor and a constitutional corporation were constitutional: ie whether they were ‘with respect to 51(xx) corporations’ – the court split 4/3 on the answer, in a different
configuration to the plenary/non plenary divide. (Brennan, Dawson, Toohey and McHugh said the laws were invalid, Mason, Deane and Gaudron
thought they were valid). It sems to me that a division on the way to a decision (that wasn’t in line with this division on the central point) is a relatively weak bind on a fresh court.